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Compounding finds the future value of a present value using a compound interest rate. Discounting finds the present value of some future value, using a discount rate. They are inverse relationships. This is perhaps best illustrated by demonstrating that a present value of some future sum is the amount which, if compounded using the same interest rate and time period, results in a future value of the very same amount.
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Explain the difference between compounding and discounting and how they value the cash flows of the organization?
Compounding means that you are adding money to the capital. Discounting means that some of the cost is being taken away.
Discounting is compounding in reverse?
yes
Principles of compounding vs discounting?
Compounding has to do with adding things together to create a larger version of the original. Discounting is about cutting things such as cutting prices.
What is the relationship between discounting and compounding?
The only relationship between these two things is that it gives a consumer more product for less money. Discounting is taking an amount of money off a product and compounding is giving more than 1 product at the same price as 1.
What is the inverse of compounding interest?
discounting..ie....1/(1+r)^n
What is the difference between factoring and discounting invoice?
The difference between factoring and invoice discounting is how public the third party makes themselves to a companies customers. With factoring customers are likely to notice the third party, and invoice discounting will leave most customers unaware of a third party.
What is discounting principles in managerial economic?
The discounting principle in managerial economic is the opposite of compounding. It is based on the present value of a sum of money you are getting in the future, the discount rate and the frequency.
What is the difference between factoring and bill discounting?
Whereas invoice discounting is a loan secured against your outstanding invoices, invoice factoring companies actually purchase the unpaid invoices outright. ... This is an important difference because it provides factoring companies with credit control, which enables them to deal with customers directly.
Difference between funded and non-funded credit facilities?
fund based facilities includes cash credites, bill discounting, overdraft and term loan
If an investor had to choose between daily monthly or quarterly compounding which would you choose?
The greater the number of compounding periods, the larger the future value. The investor should choose daily compounding over monthly or quarterly.
What are the Discounting and Non-discounting Criteria of Capital Budgeting?
IRR
How much difference do you think it makes for your bank account whether there is continuous compounding of interest or only monthly or annual compounding?
Banks that offer more frequent compounding usually lower the rate so that the annual equivalent rate remains the same. So the probable answer is no difference at all. Also, for the amount of money most people have in their bank accounts, the difference would, at best, be negligible. It would, quite likely, be less than the value that they attach to the time required to calculate the difference.
